SEBI's Major Decisions To Strengthen The Market Infrastructure And Safeguard Investors

In SEBI's board meeting held on March 29, 2023, the regulator decided to introduce a slew of measures focusing on safeguarding the interests of investors as well as strengthening the market infrastructure to deal with dislocations, as reported by Economic Times. Here are the details.

Chnages in Mutual Funds
Private equity funds are allowed to be sponsors of mutual funds. It is aimed at giving more flexibility to industry and will be helpful to diverse set of entities to become sponsors.
Also more clarity will be provided on the roles and responsibilities of Trustees and board of asset management companies, as the regulatory body would make changes in it.

Changes in Alternative Investment Funds
A steady guidance will be provided consistently with a standardised approach for valuation of their investment portfolios.

In order to protect investors against operational risks and fraud, SEBI has mandated AIFs to dematerialise all units for all new schemes and existing schemes with a corpus of more than Rs 500 crore by October 31 while existing schemes with corpus less than Rs 500 crore will have to dematerialise their units by April 30, 2024.

Changes in Regulatory Framework for Index Providers
More transparency should be there in Index Providers and better accountability should be there in governance and administration of financial benchmarks in the securities market. All Indian indices, including MSCI, fall under SEBI norms.

Changes in Stock Broker Regulations
A new framework will be introduced to provide an institutional mechanism for prevention and detection of fraud or market abuse by stock brokers. The proposed amendments will come into effect from October 1, 2023

ESG disclosures, ratings, investments
A new disclosure, BRSR (Business Responsibility and Sustainability Report) Core is made mandatory on Environment Social and Governance (ESG) to enhance the reliability of disclosures. In BRSR a limited set of Key Performance Indicators (KPIs), for which listed entities will be required to obtain "reasonable assurance". ESG Rating Providers (ERPs) will have to consider India/emerging market parameters in ESG ratings as the emerging markets have a different set of environmental and social challenges. Additionally, ESG schemes will have to invest at least 65% of AUM in listed entities, where assurance on BRSR Core is undertaken.

Changes in Corporate Debt Market
SEBI to set up "Corporate Debt Market Development Fund" (CDMDF) to act as a "backstop" facility to purchase investment grade corporate debt securities in times of stress. CDMDF, based on a guarantee to be provided by National Credit Guarantee Trust Company (NCGTC), may raise funds to purchase corporate debt securities during market dislocation.

The market regulator has also extended the compliance period for 3 years for Large Corporates to raise 25% of their incremental borrowings through the debt market to a contiguous block instead of the current 2 years. And even extended the 'comply or explain' period for High Value Debt Listed Entities (HVDLEs) with respect to corporate governance norms till March 31, 2024

Changes in Disclosure Norms
A time limit for determining 'materiality' of events or information will be introduced. Within 30 minutes of the board meeting, a listed entity must disclose "material information" from the meeting, and all the material information within 12 hours

Top 100 listed companies by market capitalization must provide clarification and confirmation on market rumours starting from October 1, 2023. And top 250 listed entities, will have to start giving clarification and confirmation from April 1, 2024.

A periodic approval of shareholders will be required for any director serving on the board of a listed entity in order to do away with the practice of permanent board seats. Companies must fill up the vacancy of directors, compliance officer, chief executive officer within a period of 3 months from the date of such vacancy.